United Kingdom central bank set to hold interest rates amid slowdown

Posted - May 11 201801:38

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United Kingdom central bank set to hold interest rates amid slowdown

Just one month ago investors were pricing in an nearly 90% probability of the BoE hiking rates in May, yet after a month of weak data and a dovish sounding BoE Governor rates are widely expected to be kept on hold.

"If the ongoing uncertainty around Brexit is added in then the MPC is likely to err on the side of caution and keep the rate at the current level".

"We think that momentum in the economy is going to reassert", Carney said.

Financial markets had seen a rate hike this month as a near certainty until the recent first quarter data shock and subsequent gloomy reports from different sectors of the economy.

Citing reasons for holding Bank Rate, the MPC noted that GDP growth fell to 0.1% in Q1 and that economic activity is "little changed".

Howard Archer, chief economic adviser at the EY Item Club, said: "Recent events have made an interest rate hike on Thursday seem progressively less likely - to the extent that it now looks a very long shot".

A rise in United States 10 year yields back above the psychological 3.0% level helped support the greenback, while offsetting some of the concerns over Donald Trump's decision to pull out of the Iran nuclear deal on Tuesday evening.

"Partly reflecting some recovery from weather-related disruption, the MPC expected stronger growth, of around 0.4 per cent, in Q2", the Bank's minutes stated.

Second Eurovision 2018 semi-final to take place on May 10In case you missed it, Ireland got through to the final of the Eurovision , following the first semi-final on Tuesday evening. It's the first time for Portugal to host the competition, after Salvador Sobral won the contest previous year .

The pound has slipped after the Bank of England held interest rates and investors priced in a lower likelihood that there would be an increase any time soon.

The strategist trimmed her year-end call for the 10-year gilt - which was already the lowest among those surveyed by Bloomberg - by 30 basis points to 1 percent in a note released ahead of the decision.

This afternoon's US inflation data could hold the key for EUR/USD today, given a lack of meaningful announcements out of the Eurozone.

But wages - which the Bank is also closely-watching - are beginning to outstrip inflation, with average weekly earnings up 2.8% in the year to February in a sign that other inflationary pressures may be building. A Treasury representative also attends the meetings and can discuss policy issues but is not allowed to vote.

"Until a few weeks ago, a further quarter point rate hike to 0.75% looked nearly guaranteed".

Quite simply, GBPUSD will strengthen if his comments are sufficiently hawkish to suggest a rate rise in August is likely, while optimism about the economy in the Inflation Report would bolster those expectations.

While they expect it to recover from a weak start to the year, there is a risk that the slowdown could be more persistent.

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